IP: The perfect storm that led to the rise of design patents

By now, companies should be savvy enough to know that design patents are an extremely useful part of, or addition to, a comprehensive patent policy. In the United States, the two most common types of patents are utility patents and design patents. In general, utility and design patents require that the invention or design be novel or new, and non-obvious. Utility patents require the invention to have utility, while design patents require the design to be ornamental.

There are a number of significant reasons (presented further below) why design patents have become so attractive over the last decade. And the reasons were all illustrated in the case the Wall Street Journal touted as “The Patent Trial of the Century.”

Damages

Look no further than the ongoing Apple v. Samsung patent battle to appreciate the value of design patents. In that case, hundreds of millions of dollars of the historic damages award were attributable to design patent infringement. Under the Patent Act, “[u]pon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.” This provision applies to both utility patents and design patents.

Under Section 284, there are two significant categories of damages: lost profits and reasonable royalties (price erosion can also apply in certain cases). Over the last decade, the Court of Appeals for the Federal Circuit has arguably made proof of damages for infringement of utility patents more difficult by clarifying or modifying the rules that apply to both damages categories. For example, the Federal Circuit has reasoned that, where a patent covers only a single component of a multi-component product, applying a royalty to the full price of the multi-component product “carries a considerable risk that the patentee will be improperly compensated for noninfringing components of that product.” For proof of reasonable royalties, “it is [therefore] generally required that royalties be based not on the entire product, but instead on the ‘smallest salable patent-practicing unit.’” In other words, as a general rule, the royalty base—to which the royalty rate determined by the fact finder is applied to calculate royalty damages—may generally be found to be the aggregate price of a single component of a larger product, if the component is all that the patent covers. One exception is the entire market value rule, under which the royalty rate may be applied to the price of the entire product if the patent owner proves that the patented feature drives demand for the entire product. Such outcomes are concerning to design patentees as well.

However, if a design patent is asserted, there is a way to effectively avoid the smallest saleable patent-practicing unit rule. Under Section 289, an infringer of a design patent “shall be liable to the owner to the extent of his total profit.” This disgorgement of profits provision provides an alternative to Section 284 and does not authorize a double recovery for the same infringement. To understand the impact of disgorgement, consider again Apple v. Samsung, which illustrates that a patent owner may be able to obtain the design patent infringer’s “total profit” for the sale of an entire smart phone. Yet, that same patent owner may only be entitled to a reasonable royalty on the smallest saleable patent-practicing unit (e.g., a chipset) against a utility patent infringer for, in essence, the same product (i.e., the smart phone). Thus, disgorgement of profits can be an extremely useful tool to drive up an accused infringer’s royalty, or to drive up the price to settle a patent infringement lawsuit.

Term, maintenance fees and procedure

In 1995, the U.S. Patent System made a change to avoid so-called submarine patents by changing the patent term from 17 years from issue to 20 years from filing. Both before and after that change, the term of a design patent has continued as 14 years from issue. Importantly, this term applies even to continuation applications filed after the initial filing date of a design patent application. The outcome is the term advantage of design patents.

Additionally, once issued, utility patents have three maintenance fees that must be made at certain intervals after issuance. The Patent Office has recently increased some of these fees, which forces companies to decide which issued, utility patents to maintain. In contrast, no maintenance fees exist for design patents: a further advantage of the design patent schema.

Moreover, for the last decade, there has been a significant backlog of utility patent applications at the U.S. Patent Office. While the Patent Office has done a good job of reducing that backlog, the prosecution pendency for utility patents continues to increase (i.e., the time from filing to issuance). In contrast, the prosecution pendency of design patent applications is very short. Again, an advantage for filing design patent applications.

Continuation Practice

Continuation practice is useful for both utility and design patents. Due to potentially shorter prosecution pendency, design patent applicants receive feedback from the Patent Office regarding what is patentable much more quickly. In having such insight sooner rather than later, in appropriate circumstances, continuing applications can be filed to effectively provide more comprehensive protection for a design, especially with respect to smaller portions or segments of a larger design. This can prevent competitors from copying not only the ornamental appearance of an overall design, but also from copying particular esthetic aspects as well. It should be appreciated that case law in the last five years has addressed the requirements for support that must be present in an original design application in light of continuation practice. However, one way to minimize “support” issues is to draft a thorough design application initially—one that includes, for example, alternative embodiments and generic claims as well as species claims.

In sum, recent developments have heightened the importance, visibility and usage of design patents. Absent changes in the law, design patents are likely to remain important for many years to come. One should look at whether and when design patents are appropriate for one’s client as part of a comprehensive patent strategy.

Contributing Author

Scott McBride

Scott McBride (smcbride@mcandrews-ip.com) is a shareholder at McAndrews, Held & Malloy. Scott has more than 15 years of experience in patent litigation and...